Skip navigation
2012

QAbriangermer_Body.jpgby Jen Hickey.

 

Business writer Jennifer Hickey recently spoke with Brian J. Germer, CPA, who has been working with small businesses as a principal at Portland, Oregon-based Parsons & Germer, CPAs, LLP for over 12 years. He also contributes articles to PDXCPA: Portland Small Business Tax Blog and is the author of The Pocket Small Business Guide to Taxes.

 

JH: At what point should a small business owner (SBO) think about hiring a CPA?

BG: While it does depend on the needs and type of business, an initial meeting with a CPA to go over filing requirements, business structure, and the tax essentials is a good idea when you start planning for a new business. Many CPAs will not charge for the initial new client interview appointment. But even if it costs $100 or more for an hour meeting, it is a well worth the money, as mistakes in the setup of a business—especially with regard to the decision on the business entity type—can be very costly down the road.

 

Granted, a SBO could research much of this information themselves, but you have to look at the amount of time that would take away from building your business. Plus, there is a lot of inaccurate and outdated information on the web. So it is far more effective to engage a professional who has to stay current on the latest rules. In addition, a CPA is going to help separate the tax essentials the SBO needs to understand and those details only professionals really need to worry about. Partnering with a professional can help improve profitability by allowing a SBO to devote more time to managing and growing your business.

 

Also, when you have multiple owners of a business, you really need an independent party to review the books and complete the tax return. Having transparency with the financial data is important, so that no owner feels cheated. We see problems all the time where one owner or their spouse handles all the finances and there is poor communication with the other owner(s). Having a professional that is trusted by all the owners and explains all the issues is vital.

 

Lastly, if you have a CPA prepare your business tax return, you should have them prepare your personal return as well. Many younger small business owners with LLCs or S corporations try to save money by using Turbo Tax to prepare their personal returns. But most of the time, the CPA who does your business returns is going to save you much more in taxes and can offer a more comprehensive tax plan. The extra cost is well worth it, especially with how complex K-1s and basis limitation issues are getting.

 

QAbriangermer_PQ.jpgJH: What types of questions should a SBO ask when shopping for a CPA?

BG: You always want to consider the size of the firm, who your direct contact will be, and whether it’s a sole ownership or one with several partners. We’ve taken on several [SBOs] that expressed frustration at being shuffled among different contacts with their prior firms. Make sure you have one point of contact and are not re-allocated to lower level staff.

 

Every CPA firm bills differently, so it is important to understand how they bill so there are no surprises or misunderstandings. Most firms bill by the hour, so SBOs should get the rates and ask who will be preparing the work, as there are often several tiers of billable rates. Some firms charge different rates depending on the type of work done. For example, accounting work is often charged at a much lower rate than consulting. Lastly, the SBO should ask for a range of what the CPA thinks it will cost. While it’s difficult to give exact prices—as it will all depend on how much work needs to be done to prepare the trial balance for the tax return—most CPAs can provide a fairly accurate fee range after briefly reviewing your tax return and accounting data.

 

It’s important to know if the firm offers writeup work or work with independent bookkeepers that can help your business stay up to date with its accounting, as those adjustments fees can really add up. If your business has a dedicated person in house that handles the accounting, see if the firm offers training.

 

You also want to find out how the firm approaches tax return work to see if they do any analysis. We take a balance sheet approach, almost like preparing a financial statement. In addition, you want to make sure journal entries are returned. If you ever have to seek a new tax preparer, it will be a mess to clean up without them.

 

A SBO should also inquire about staff turnover, as that’s usually a telling sign if it’s high, and whether the firm offers representation before the IRS in case of an audit.

 

JH: Should SBO be looking for an accounting firm that works primarily with businesses in the same industry?

BG: A firm that handles many businesses in a certain industry will usually have a lot more insight and be more effective, as there are industry-specific tax rules, particularly concerning depreciation. Also, when it comes to financial analysis, such firms tend to be knowledgeable about how those businesses can increase their profitability.

 

JH: What should a SBO have in place before their first visit to a CPA?

BG: If seeking help to structure your business, you should have a good business plan. If an established business, make sure you have filed all the necessary documents with the state. A SBO might want to bring copies of these documents when meeting with a new CPA, as they are typically needed for their permanent file. SBOs should keep a file with all IRS and state registration documents and correspondence for their business. These documents are very important—especially the 2553 and related acceptance letter if an S [corporation] election has been made.

 

If a sole proprietor, it would be a good idea to have some accounting system in place. Sole proprietorships do not have to report their balance sheet on a tax return, so the chart of accounts is going to be fairly straight-forward. However, LLCs and S corporations are much more complex, so a SBO might want to wait until meeting with a CPA to set up the chart of accounts and customize their accounting system.

 

Strong organization of receipts, along with a good filing system, whether virtual or hard copy, will help make tax preparation more seamless. And nothing is worse than being audited and not having the necessary supporting documents.

 

Sometimes first-time clients can be concentrated on deductions when they should be focused on business structure, setting up an accounting system, and how they are going to make a profit. As CPAs, we just see far too many new business owners rack up thousands of dollars in attorney and accounting fees and then their business never gets off the ground. It’s best to start small with a sole proprietorship or an LLC and then worry about deductions or incorporating when you actually have a steady profitable business.

 

JH: What are some of the other services CPAs offer outside tax preparation?

BG: Tax returns are a necessary evil. Most CPAs also offer business consulting, budgeting, and long-range tax planning to help clients become more profitable. Payroll services is an area where businesses can make a lot of mistakes and wrack up some penalties. A CPA can also help SBOs find as much value out of their accounting systems.

 

JH: How often should a small business meet with an accountant?

BG: A sole proprietorship that has been handling the accounting themselves all year should definitely meet with a CPA sooner rather than later. Between mid-October and mid-December are the best times. If they wait too long firms are often too busy with year-end tax planning and the holidays to help new clients.

 

Meeting with a CPA before year-end allows a business owner to make adjustments to estimated tax payments, get the books cleaned up and ready for the tax return preparation, and to take advantage of any last minute tax strategies.

 

When a CPA prepares your personal tax return, they should provide you with estimated tax payment coupons based on the your tax liability from the return, less any anticipated withholdings. If your adjusted gross income was above $150,000, the CPA will base the federal estimates on 110 percent of the tax liability amount. This amount is the “safe harbor” amount that protects you against underpayment penalties. Most CPAs can also base your estimated tax payments on a projection with their tax software, and estimated changes or circumstances can be factored in. If you owed less than $1,000 on your tax return, the estimates are not required and your CPA may provide blank coupons or none at all depending on your circumstances.

 

Most clients may only need to discuss estimates once a year with their CPA when their return is being completed. However, SBOs with growing businesses tend to have brief meetings or phone conversations with their CPA before each [quarterly] estimate is due. It is rare for changes to be made to second-quarter estimates, but usually I run new projections for the estimates due Sept. 15 and Jan. 15. For more stable businesses, we may only meet before year-end to see if the fourth-quarter estimate needs to be adjusted and to estimate net taxable income. You only have to pay estimates to cover 100 percent of the prior year tax (110 percent if adjusted gross income [AGI] is over $150,000); if you owe additional amounts above the safe harbor, you can choose to increase your final estimate or wait to pay the balance on April 15.

 

Keep in mind that the first-quarter estimate for the next year is also due April 15, so it can be a big double whammy if you owe a large balance for the prior year and have to pay a higher estimate for the first quarter. This is where many business owners, who did not meet at year-end, run into cash flow problems and have to borrow. In states with income tax, it is often a good tax strategy to pay the fourth-quarter state estimate before year-end, as long as the taxpayer is not subject to alternative minimum tax.

 

 

Disclaimer: The opinions expressed are solely those of the interviewee.  As always, you should seek the advice of a CPA, financial planner, or other qualified professional for guidance specific to your situation.

QAretirement_Body.jpgby Iris Dorbian.

 

As a partner at LJCooper Wealth Advisors, a financial planning firm that launched in Utah in 2000, Craig M. Porter Rollins has clocked many hours advising small business owners on all matters related to personal finance. Chief among his specialties is retirement planning. For small business owners, this can be anything from setting up IRAs or 401(k)s to repositioning an owner’s assets after selling a company. Recently, business writer Iris Dorbian caught up with Rollins to discuss the most common mistakes small business owners make when it comes to retirement planning. He also offers his opinion on the eternally modern predicament faced by small business owners: Can you really save in a bad economy?

 

 

ID: What are the most common mistakes small biz owners make when it comes to planning their retirement?

CR: They don’t. The most common and prolific mistake that we see small business owners make is that every year they pump money back into their business. They take excess of profits, if they have any, and they put it all back into the business. They treat their business as their retirement, which is a monumental error because you just don’t know what the economy is going to bring in the future. The last couple of years have been a great example. Getting a small business owner to put away 10 percent or five percent—anything in those first few years of their business running—is very difficult. Unfortunately, if they don’t do it early, the habit sets in and every year they take income coming in from their business and they put it back into their business to make it better and they put nothing aside for retirement. That’s probably the number one mistake we see.

 

 

ID: How can they stop this?

CR: We advise our business clients pretty much the same way regardless of what happened the last few years. In fact, if anything, the last few years we’ve said if you had been putting more away for retirement and your business struggled or something happened, you would have a fallback. But now you don’t have that because you haven’t been putting money aside. Another issue we see for most small businesses is they have no emergency fund. Their emergency fund is their personal credit card, not corporate. So mistake number two is no emergency fund for business—we call it a sustainability plan. Most small businesses have no sustainability plan. They’re literally paycheck to paycheck. So we try to get them in the habit of setting something aside for retirement and for a sustainability plan. I don’t care how much it is; it’s about getting them into the habit. Once you get someone into the habit, once they do it several times, they begin to see there’s a benefit long term and it’s easier for them to put more away as time goes by.

 

 

QAretirement_PQ.jpgID: Can you give an example?

CR: I had an individual who approached me seven or eight years ago. The father had a closely held corporation with his three sons and said he needed to do something [about retirement planning]. He said, ‘I don’t have a ton of money. What can I do for a few hundred bucks a month?’ We set them up with a simple IRA plan. It was something very basic for him and his three boys. He passed away a year later, but he and his sons got into the habit of putting something away. There was also an insurance plan in place for the father, which was very beneficial to help transition the business. And in fact he had said, ‘Maybe I should get rid of the insurance plan.’ I said, ‘No way. You can’t afford to do that.’ Now, I didn’t know his health was going to deteriorate. No one did. But I’m grateful that I made him hold onto that life insurance plan because it would have been detrimental to the business, which may have not survived.

 

So here we are now, eight years later and every one of those boys now has a six-figure retirement plan because of what we did for that company. We actually switched their plan to a full 401(k) because they got into the habit of putting money aside. They also had a sustainability plan. When the market had a downturn, they not only weathered the storm, but they thrived because they could do some things that other companies that were struggling couldn’t do. I think they’re all funding the maximum in their retirement plans today and they started with a couple hundred dollars years ago. That’s a classic example of just start with something, anything, to get into the habit and then you can see the benefit. Those men have also all started education funds for their kids. That’s the perfect scenario—that they listened.

 

 

ID: How do you plan for retirement in a recession?

CR: Again, it’s not a question of the dollar amount; it’s the question of starting and maintaining the habit because you’re going to have lean times. Any small business owner out there that thinks they’ve got the end-all-be-all program that’s going to make them millions and bazillions of dollars [is mistaken]. There’s going to be lean times. There’s going to be mistakes; there might be health issues. You just don’t know what the future holds. It’s about getting into the habit—I don’t care if you’re putting 50 bucks away a month. They have got to start that habit. That’s the number one key to success. They’ve got to put money aside regardless of what the business is doing.

 

 

ID: Aside from putting money aside, what are some other tips you have for small business owners when it comes to planning retirement accounts?

CR: Being a financial advisor, I have a predisposition for people to get advice. A little bit of qualified advice goes a long way. Business owners who don’t think they can afford an advisor better get one. Get a referral from a friend. Do your homework, but sit down with a financial advisor that has some experience with small business because they can save you so much. I look at the ones that have listened to us versus the ones who haven’t and it’s absolutely vital that they find an advisor that they trust and follow their instructions. Otherwise, they’re gambling with their business.

 


Disclaimer: The opinions expressed are solely those of the interviewee.  As always, you should receive the advice of a qualified retirement plan professional prior to investing in a retirement plan.

TaxStrategy_Body.jpgby Jen Hickey.

As a small business, you’re always looking for ways to maximize the bottom line. But come tax time, it’s best to minimize that income, so you can hold on to more of it. This requires budgeting and planning well before Dec. 31, as you need to have enough money to take advantage of the many tax deductions and credits available to small businesses. And for those businesses worried about the fiscal cliff, it may make sense to do the opposite this year if on the brink of jumping into a higher tax bracket.

 

However your business is structured, any income that remains after all your bills have been paid is taxable.  “Every dollar you can defer is a dollar worth deferring,” notes Arthur Cooper, President and CEO of Optimum 7, an internet marketing company based in Morristown, N.J. with offices in Miami, Fla. Cooper recommends pre-paying fixed monthly expenses (e.g. rent/mortgage, utilities, monthly subscriptions, insurance) for early 2013 to reduce taxable income for 2012. “Business expenses are counted on an accrual basis [when they occur], while income is counted on a cash basis,” notes Cooper. “So, it makes sense to delay accounts receivables and any bank deposits until the first week of January.”

 

TaxStrategy_PQ.jpgDespite or because of the uncertainty of what tax rates may look like next year, Cooper is sticking with what’s worked best for his business, minimizing income and maximizing expenses. “This is the choice every business has to make,” says Cooper. “For those businesses sure to face higher taxes next year, an argument could be made to generate as much income as possible this year, as you’ll pay more in taxes but at a lower rate.”  Collect on all those unpaid bills and deposit very check before year end while waiting until after Jan. 1 to pay your bills and accrue any business or capital expenses. Cooper, who's had the same accountant for 25 years, advises consulting a CPA well versed in all the deductions/credits available to small businesses. “The fact is nobody knows what will happen. Congress could kick the can down the road again,” notes Cooper. “But in terms of tax planning, you can’t wait until they’ all go home for the holiday recess. It will be too late.”

 

While virtually any expense related to the cost of running your business can be deducted, there are also many credits available to small businesses. While deductions are subtracted from income, on which your tax liability is based, tax credits are deducted directly from your tax bill, essentially reducing your tax liability dollar for dollar. Rachel Scott, MBA, EA and Principal at Canoga Park, California based

VSA Accounting Services, encourages businesses take advantage of those deductions set to expire or change in 2013. Sections 179, which allows businesses to deduct up to a maximum of $139,000 on equipment and software purchased and put into use in 2012, is due to drop to $25,000 in 2013.  And bonus depreciation of 50% on equipment purchases over the $560,000 threshold for capital investment writeoffs is to be phased out. “If you have profits and can declare dividends,” notes Scott. “Qualified dividends are still being taxed at 15%, but that’s due to rise next year.” Scott recommends declaring dividends and reducing profits now to take advantage of that lower rate. Another overlooked deduction is for startup costs, up to $10,000 for 2012. This shrinks to $5,000 for 2013. Small businesses can also claim a tax credit for up to 50% of the costs to set up a retirement plan.

 

Christopher Tasik, founder and managing director of Stamford, Connecticut based Tasik Financial Strategies, LLC, recommends small business owners max out their 401k contributions ($17,000, if under 50; $22,500, if over 50). “If the amount you’re putting in every pay period doesn’t hurt a little bit, you’re probably not putting enough in,” says Tasik. For 2012, businesses with only one employee-owner can contribute up to $50,000 ($55,000 if over 50). Tasik suggests looking into multiple employer plans to help scale the costs. “The real value of a 401k to a business is employee loyalty,” notes Tasik. “It’s really not that huge of a cost for the value.”

 

The Affordable Care Act (often referred to as ObamaCare) provides tax credits for up to 35 percent of premium costs for certain small businesses starting or continuing to provide health insurance coverage to employees through 2013. In 2014, the maximum credit increases to up to 50 percent. Health savings accounts (HSAs) allow employers and employees to make tax-free contributions to the account for medical expenses. For 2012, the maximum contribution for individual coverage is $3,100 and $6,250 for family coverage (with $1,000 additional catch-up contributions for people age 55 or older). Some state even offer writeoffs for HSAs.

 

Another way to build goodwill among your employees and reduce your tax liability is by giving bonuses. Gifts or $25 or less are also tax deductible. You can also take a federal deduction if you pay state and local taxes before Dec. 31.

 

Don’t forget to hold onto those receipts for smaller expenses. While the IRS only needs receipts for business expense over $75, you need some form of documentation to claim the deduction. “You could be losing out on potential writeoffs,” warns Greg Jones, CEO of Tysons Corner, Virginia based Bookkeeping Express and co-owner of two Five Guys Burgers and Fries franchises. “Having organized records makes it easier to deduct those expenses.” Jones recommends categorizing receipts and outsourcing part of internal systems (e.g. payroll, bookkeeping) as a way to self audit your business.  Such best practices should be implemented throughout the year. “You have to take care of the basics,” notes Jones. “You need to know what deductions are available and what you need to prove them.”

 

Budgeting is a key part of keeping that financial house in order. “Every small business needs to have a budget,” Tasik points out. “You can’t do any tax planning without money in the bank.” Small businesses should already have a budget in place for next year and be measuring that budget against actuals throughout the year. Jones recommends getting bringing in your CPA twice a year for a “temperature check” to make sure you’re maximizing all the deductions and credits available to your business, particularly those specific to your business’s industry. 

 

Jones and his partners in the limited liability company that operates their Five Guys restaurants keep reinvesting their profits into growing the franchises rather than taking distributions. They are set to open a third next month. As long as the money stays within the LLC, it’s  not taxed. “If want distributions throughout the year, be prepared to pay come tax season,” says Jones. “For us, we’d rather grow the business now. We look at it as more of an annuity for when we don’t want to work anymore.”

 

It’s not that you won’t have to pay, it’s just a matter of when. “The more you can defer your tax burden, the better financial shape you’ll be in,” explains Cooper. “Especially when you compound that activity year over year.” All that income deferred into January becomes taxable the next year or when you sell your business or retire. “It’s far better to show as little income as possible in any given tax year, as it lowers your business’s tax burden,” advises Tasik.


QAdeniseoberry_Body.jpgby Susan Caminiti.

 

Taking the time to understand your company’s cash flow is crucial to the health—and longevity—of your small business. So says Denise O’Berry, a Tampa-based small business consultant and author of Small Business Cash Flow: Strategies for Making Your Business a Financial Success. Recently, O’Berry spoke with business writer Susan Caminiti to explain this important financial indicator and why entrepreneurs should not neglect it.

 

 

SC: We often hear small business owners talk about profits and cash flow as if they’re the same thing. What’s the difference?

DO: Cash flow is exactly what the words imply: It’s a look at how the cash flows into and out of your company. Now there are two forms of cash to look at. Income is the money you bring into the business for the services you provide or the products you sell. Expenses are defined as the money you spend to run your business. Profit is what’s left over after all your expenses are paid. So the terms profits and cash flow are not interchangeable.

 

 

SC: Can you explain why it’s so important for a small business owner to understand and focus on cash flow?

DO: Cash flow tells a really important story about your business and how things are going. Let’s say you sell a product. Your cash flow can tell you how much of that product you’re selling in any given time period, if you have seasonal peaks and valleys, and what changes you might have to make as a result of that. Now the one thing I always tell small business owners is that cash flow is a backward-looking snapshot of your business. In addition to a cash flow statement, I always recommend to small business owners that they create a cash flow budget or cash flow forecast for the next six months or so.

 

 

QAdeniseoberry_PQ.jpgSC: Why is that important?

DO: For one thing, it helps them sleep better at night. A cash flow statement helps you understand the history of your business, but a forecast can help you understand what’s projected to happen down the road—and help you better prepare for it. Let’s say you have a big insurance bill that comes due once a year, and it happens to hit during one of those seasonal times when business is typically a little slow. Would you rather know today that in four months you’re going to take a hit to your cash flow and be prepared, or would you rather open up that bill four months from now and think, ‘Oh no, where am I going to come up with the money for this?’ That’s the purpose of a cash flow budget. It gives you time to deal with, and change, the outcome of future cash flow without being in a panic situation.

 

 

SC: In your experience, do most small business owners take the time to understand their cash flow?

DO: No, not really. And I think the reason why is because many small business owners relate cash flow to math and math is that horrible, boring subject that people don’t want to deal with. But in reality, cash flow doesn’t really have to do with math. It has to do with the story of your business and how it’s doing in the marketplace. Just think about it: So many small business owners are focused on marketing because marketing is sexy and cash flow is not. They think it’s boring. But if you deal with it on a consistent basis, cash flow will tell you how successful you’ve been with those marketing efforts or any other strategies you use.

 

 

SC: How often should small business owners look at cash flow?

DO: At the very least, I would say monthly. But you can also look at it weekly or even more frequently than that. The sad part is that so many small business owners only look at it once a year when they’re meeting with their accountant. I worked with one small business that thought that as long as there was money in the checking account they were cash flow positive. They didn’t know what was happening on the expense side. Eventually they went out of business.

 

 

SC: What about payments from clients and customers? What can small business owners do in this area to maximize cash?

DO: Small businesses in the service sector usually provide the service and then bill the client. It’s really not smart. It’s called being a bank for your customers and I advise small businesses against it.

 

 

SC: Why?

DO: What ends up happening is that there’s a huge delay. If it takes a week to do the work and then another week to invoice and you give the client 30 days to pay, the small business is already waiting six weeks to get paid. They’ve been a bank for their customer for six weeks. Or they send out the invoice in a timely manner, but don’t put a due date on it. How many bills do you pay that don’t have a due date on them?

 

 

SC: So what’s the smarter way?

DO: Get your money up front, or at least a portion of the payment up front and the rest upon completion. Now I’ve had clients say to me that their customers would never agree to those terms. And I tell them that they probably have the wrong clients. It’s not an unreasonable request. And on your invoice put net five days, not 30. I don’t know who decided it has to be net 30 days. If you’ve targeted your market correctly, it should not be a problem. After all, that’s the beauty of having your own small business. You can create the rules.

 

 

This interview has been edited and condensed.

Payroll_Body.jpgby Iris Dorbian.


It may be among the least sexy aspects of running a small business, but that doesn’t mean that payroll shouldn’t be a priority. An effective and efficient payroll operation facilitates timely and accurate employee pay while withholding taxes correctly in accordance with state and federal regulations. Having a system that fails to perform these basic functions will not only incur the justifiable wrath of employees, but could also result in penalties, audits and other draconian measures that could threaten to end your business.


No doubt, if you’re an experienced small business owner, you already know this and have some kind of payroll system in place. But as the famous writer Oscar Wilde once said, “It is always with the best intentions that the worst work is done.” Suppose your payroll system has experienced some software glitches lately or perhaps was not in compliance with federal and state tax regulations. How do you rectify these errors, ensuring they will never happen again? What best practices should you, as the small business owner, undertake to improve your payroll operations?



Minimize your pay cycles

Having different pay schedules for different types of employees, such as monthly for management or bi-weekly for hourly employees, may be a commonplace practice, but it can lead to duplicating errors in the payroll process.


”The less of these schedules, the better,” says Tiffany Washington, owner/founder of the five-year-old Waldorf, Maryland-based Washington Accounting Services, which specializes in small business payroll and has close to 1,000 clients.

 

“Minimizing pay cycles can help prevent the duplication of multiple processes so that the payroll department can operate more efficiently,” she continues. “To maximize efficiency, every type of employee should be paid on the same pay schedule (weekly, bi-weekly, or monthly). This will allow the payroll department to focus on one task at a given time. Having one pay schedule to maintain instead of three is a lot easier to maintain. It will also lessen the chance for errors to be made during the payroll process.”



Payroll_PQ.jpgIntegrate your systems

You may have an online payroll system you consider state-of-the-art, but it will ultimately prove to be counterproductive and costly if it doesn’t mesh with your accounting system. Washington cites a client, with 33 employees, and more than a dozen out-of-state workers, that recently encountered this problem. These distant employees, coupled with the incompatibility of the client’s online payroll and accounting systems (which the client was initially not aware of), was wreaking havoc on the payroll operations, particularly when it came to following out-of-state regulations and administration fees.


Although the withholding of taxes was being done correctly, explains Washington, “the unemployment [taxes weren’t] being coded to the correct state where the employee lived. Instead it was being coded to where this employer was located, which was in Maryland. So everyone was getting unemployment in Maryland instead of it being coordinated to the specific state that they were living in.”


Washington and her staff rectified the situation by filing “two years of amended unemployment returns,” she explains. But not even that cleared things up completely. “There were some penalties that had to be paid because things were not filed in a timely fashion, but we were able to get them up and rolling and in compliance,” she notes.



Outsource your payroll

If you’re a small business owner who doesn’t have the time or energy to invest in building a new payroll system or updating an older one, you may want to consider outsourcing it to a third-party provider. However, before you sign up with any payroll service, do your due diligence and make sure you get referrals from other reputable small businesses or people whom you trust. And remember, the cheapest is not always the best.


"You 'get what you pay for' from service providers, and often times, going with a provider based solely on price means you sacrifice important things like customer service or flexible platforms,” says Jason Maxwell, president of MassPay,, a payroll provider for small businesses. “Some companies will simply look online for a payroll service, or use a website to seek out competitive bids. A business owner might find the cheapest deal this way but could easily end up using an out-of-state provider that is not familiar with specific state regulations. Going with the cheapest option may also mean you sacrifice accuracy in processing.”


Washington strongly echoes Maxwell’s sentiments and adds that very small businesses may want to find a payroll or accounting firm that can also offer bookkeeping, accounting, and payroll together. “It can definitely be cost effective,” she says. With outsourcing, small business owners “are no longer accountable for payroll mistakes.” This also applies for not being responsible for legal compliance as well.



Understand state and federal tax guidelines

If you don’t calculate your payroll taxes correctly, you will incur a penalty. The only question will be when and how much.

Tom Reahard, CEO of Symmetry Software, a Scottsdale, Arizona-based company that specializes in providing payroll and payroll-related software applications to both small and large businesses, suggests that at the end of each pay cycle, small business owners should “look at their payroll register to make sure the taxes being withheld are correct.” Also, run reports that will show your federal and state liability as well as when those taxes are due.


By following the above tips and paying attention to details, you can improve your payroll operations in no time. Not only will you be thankful for turning this integral aspect of your small business into a well-oiled and reliable machine, but so will your employees.

 

Disclaimer: Since the details of your situation are unique, you should always seek the services of a qualified CPA, tax advisor, and/or other financial professional.

Filter Article

By tag: